Mobile usage keeps going up -- and so do data plan charges. This trend can't continue

InfoWorld|Jun 2, 2011

Back when dinosaurs roamed the earth and I rented a car for the first time, I drove with one eye on the odometer because I was paying by the mile. Those days are long gone, but with all-you-can-eat data plans rapidly disappearing, more and more of us are downloading with one eye on the data meter.

Consider a typical metered plan: An AT&T tablet user can use up to 250MB a month for $14.99 (see the plan for yourself). Go over your 250MB and you'll pay another $14.99 for the next 250MB, which bring you to $30. However, a recent survey by Nielsen found that the typical user of an Android device consumed 582MB per month, for a total of $45 a month on that plan (to be fair, AT&T does offer a 2GB plan for $25). iOS users averaged somewhat less -- 492MB per month -- and unlike with voice plans, unused data allowances cannot be rolled over.

And I've just mentioned the easy-to-understand part of the plan. It turns out that there are huge gotchas hidden in the fine print that vary the actual charges based on the device you use. For example, AT&T and Verizon Wireless expect smartphone users who connect to corporate email to pay $15 more per month for the same amount of data.

Sure, carriers have a right to recover costs, and there certainly are data hogs among us who should pay for their gargantuan appetites. But charges keep going up. Verizon Wireless CFO Fran Shammo said in May that his company will ditch its $30 unlimited data plan this summer. Can Sprint be far behind?

If the telecommunications industry were competitive, the market would keep the carriers from raising prices even faster. But it isn't competitive now; in most cities there are few choices for serious business users. If AT&T succeeds in swallowing T-Mobile, and Verizon Wireless advances in its plan to smash the smaller, regional carriers, the market will be even less competitive and the mobile revolution will slow to dial-up speeds.

Verizon's ugly ploy to squeeze out small carriersIf you live in a big city, you've probably never heard of Blue Grass Cellular. But to millions of people living in rural areas, companies like Blue Grass offer the best -- in some cases, the only -- local service you can buy. You might think that the survival of those companies isn't your problem. But it is.

To stay in business, companies like Blue Grass have to make roaming agreements with the big national carriers. Those agreements allow their subscribers to have service when they travel to other regions. Without those agreements, subscribers who want service when they're away from home would be forced to sign up with Verizon Wireless, T-Mobile, Sprint, or AT&T, further bolstering these already large and powerful companies.

To protect the small carriers and their customers, the FCC earlier this year passed what sounds like a very reasonable rule: Mobile broadband providers must provide data roaming to other carriers "on commercially reasonable terms and conditions." The carriers offering roaming services still have the freedom to negotiate agreements with smaller carriers individually, but they can't arbitrarily turn them down or make charges so high that customers couldn't afford them.

And that's something they've done in the past, says Steven K. Berry, the CEO of the Rural Cellular Association, which represents about 100 carriers.

But Verizon Wireless doesn't want to abide by that rule and is suing in a federal court to have it thrown out. "It is not at all surprising that Verizon Wireless is appealing the data roaming order. Verizon has fought competitive policies for a long time. They have opposed data roaming, they have opposed interoperability, and they have opposed putting an end to exclusive handset deals," says Berry.

Simply put, Verizon Wireless is trying to reduce the market to fewer and fewer players. The bigger Verizon Wireless and its rival AT&T become, the more leverage they have to set prices and terms of services across the country. Already, they together control about three-quarters of the market. Why hasn't AT&T jumped in as well? "In sports parlance, this is the equivalent of what you would call a tag-team match. If AT&T is not there to fight a logical competitive policy decision, then Verizon will step in to complete the tag-team operation for the duopoly," Berry says.

Verizon Wireless argues that it does sign agreements with small carriers. "The reason that we're filing the appeal is we just think that the voluntarily negotiated agreements have been working," a company spokesperson said.

Opposition to AT&T's T-Mobile land grab is growingMeanwhile, opposition to the AT&T merger with T-Mobile is growing. The FCC has posted a list of 50 questions for the giant carrier, asking it to defend claims that the $39 billion acquisition, which would give the combined company about 130 million customers, is in the public interest and necessary to extend and improve wireless voice and data services.

The FCC wants AT&T to produce "all plans, analyses, and reports discussing the relative network spectrum capacity constraints of the company and other mobile wireless service providers, including any relevant pricing, traffic, and spectrum-efficiency assumptions."

Sprint, which would be the biggest loser if the deal goes through, has been beating the drums to kill it. Although it's easy to be cynical about Sprint's motives, it makes a concise argument that it is worth quoting:

It [the FCC] can reject AT&T's bid to take over T-Mobile and extend the last two decades of robust competition in the wireless industry -- competition that has promoted economic growth and advanced U.S. global leadership in mobile communications. Or the commission can approve the takeover and let the wireless industry regress inexorably toward a 1980s-style duopoly. A duopoly of the two vertically integrated Bell companies would result in less choice for consumers and higher prices. A twin-Bell duopoly would stunt investment and innovation. No divestitures or conditions can remedy these fundamental anti-consumer and anti-competitive harms. AT&T's takeover of T- Mobile must be blocked.

I don't think the government should go back to the kind of stifling regulation that existed before the breakup of AT&T in the 1980s. But in an odd way, the carriers themselves want to turn back the clock. They'd like to have something akin to the monopoly enjoyed by Ma Bell (in this case, it would be a duopoly) in the decades following World War II -- but without the regulation that at least protected businesses and consumers that depend on its service.

Such a shift to an essentially unregulated market couldn't come at a worse time. The use of mobile devices is growing exponentially, a trend that will accelerate as new platforms appear and older ones get better. Just think about how much data users of devices like the new Google Chromebooks, which is almost entirely browser-centric, will consume. What's more, new applications will move to the fore; it would be a disaster if the carriers become so powerful they could discriminate against apps or content that seem contrary to their business imperatives.

Letting AT&T and Verizon carriers get their way would be a huge blow to the mobile revolution.

San Francisco journalist Bill Snyder writes frequently about business and technology. He writes the Tech's Bottom Line blog for InfoWorld, and his work appears regularly in CIO.com and the publications of Stanford's Graduate School of Business and the Haas School of Business at the University of California at Berkeley.